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Module Code:MOD000986
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EXECUTIVE SUMMARY....................................................................................................................................... 3
INTRODUCTION..................................................................................................................................................... 3
i.
About the Company.............................................................................................................................................. 3
ii.
About the Industry& Competitors........................................................................................................................ 3
iii. Key elements of Financial Performance...............................................................................................................4
iv. Current Market Conditions that Impact Coca Colas Financial performances....................................................5
3.
CRITICAL ANALYSIS OF COCA COLA...............................................................................................................6
i.
RATIO ANALYSIS................................................................................................................................................. 6
1.3.i.1
LIQUIDITY RATIOS............................................................................................................................. 6
1.3.i.1.1 CURRENT RATIO (CR)....................................................................................................................6
1.3.i.1.2 QUICK RATIO (QR)........................................................................................................................7
1.3.i.1.3 ABSOLUTE LIQUID RATE (ALR)..................................................................................................8
1.3.i.1.4 CURRENT CASH DEBT COVERAGE RATIO...............................................................................9
1.3.i.2
SOLVENCY RATIO.............................................................................................................................10
1.3.i.2.1 DEBT-EQUITY RATIO...................................................................................................................10
1.3.i.2.2 PROPRIETARY RATIO...................................................................................................................11
1.3.i.2.3 FIXED ASSETS TO EQUITY RATIO.............................................................................................12
1.3.i.2.4 TIMES INTEREST EARNED RATIO.............................................................................................13
1.3.i.3
TURNOVER/ACTIVITY RATIO........................................................................................................14
1.3.i.3.1 INVENTORY TURNOVER RATIO (ITR)......................................................................................14
1.3.i.3.2 RECEIVABLES/DEBTORS TURNOVER RATIO (DTR)..............................................................15
1.3.i.3.3 AVERAGE COLLECTION PERIOD..............................................................................................16
1.3.i.3.4 ACCOUNT PAYABLE TURNOVER PERIOD...............................................................................17
1.3.i.3.5 AVERAGE PAYMENT PERIOD.....................................................................................................18
1.3.i.4
PROFITABILITY RATIO.....................................................................................................................19
1.3.i.4.1 GROSS PROFIT RATIO..................................................................................................................19
1.3.i.4.2 NET PROFIT RATIO.......................................................................................................................20
1.3.i.4.3 OPERATING PROFIT RATIO........................................................................................................21
1.3.i.4.4 RETURN ON EQUITY/SHAREHOLDERS INVESTMENT........................................................22
4.
MARKET POSITION ANALYSIS.................................................................................................................................. 23
i.
PRICE EARNIG RATIO.....................................................................................................................................23
ii.
DIVIDEND PAYOUT RATIO..............................................................................................................................24
iii. DIVIDEND YIELD RATIO.................................................................................................................................25
5.
COMPARATIVE MARKET POSITION ANALYSIS............................................................................................26
6.
COMPARISON OF COCA COLA CO. & PEPSI CO............................................................................................27
i.
ON THE BASIS OF BALANCE SHEET.............................................................................................................27
ii.
ON THE BASIS OF INCOME STATEMENT......................................................................................................27
7.
LIMITATIONS........................................................................................................................................................ 28
8.
RECOMMENDATIONS.........................................................................................................................................28
9.
SCOPE FOR FURTHER STUDY...........................................................................................................................29
10.
CONCLUSION................................................................................................................................................... 29
11.
REFERENCE..................................................................................................................................................... 30
12.
ANNEXURE...................................................................................................................................................... 32
i.
BALANCE SHEET & INCOME STATEMENT OF COCA COLA CO................................................................32
ii.
BALANCE SHEET & INCOME STATEMENT OF PEPSI CO...........................................................................34
Student ID:
Module Code:MOD000986
Page 2
EXECUTIVE SUMMARY
This report provides an in depth critical analysis and comparison of Coca-Cola Co.s financial
performance over the past 5 years i.e. 2009-2013. The second largest company in the nonalcoholic beverage industry is Pepsi Co. and it is also the biggest competitor of Coca Cola Co.
(Morningstar, 2014), so a competitor analysis is also done on the basis of the financial statements
of both the companies. Coca Cola Co. has been making profits all throughout, but it needs to be
careful about the various campaigns being held against obesity, caused due to the high intake of
these soft beverages that contain large quantity of sugar (James B. Stewart, 2014).
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INTRODUCTION
Coca Cola Co. is the largest producer of nonalcoholic beverage in the world followed by Pepsi
Co. It started operations in Unites States in 1886 and now has presence in over 200 countries. It
covers more than 500 brands of nonalcoholic beverage under its umbrella which consists of
variety of sparkling and still beverages water, juices,sports and energy drinks, enhanced water,
ready to drink tea and coffee, under the leading brand names of coca - cola, diet coke, fanta and
sprite.
ii
The major competitors of Coca Coal Co. are Pepsi Co. Inc., Nestle, Monster Beverage Corp.,
GroupeDanone, Kraft Foods Group, Unilever Group, etc. which compete in a multiple
geographic market. It is also competing against various local and regional private label soft
beverage brands. Thus, the nonalcoholic beverage industry becomes very fragmented.
The soft drink/beverage industry is highly controlled by PepsiCo and Coca Cola Co.. The
industry rewards high profits with an average return on assets of PepsiCo at 10.752% and Coca
Cola Co. at 13.306%, which is much higher than other soft/beverage companies that stand
roughly at 7.00%. In spite of the growing competitors in the industry, Coca Cola Co. and
PepsiCo have a very strong and promising growth prospects and large market share but Monster
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Financial statement analysis is the procedure of collecting, evaluating, analyzing and interpreting
the financial data of a company along with measuring the risks and returns for the investments
(Pamela Peterson Drake, Frank J. Fabozzi, 2012, pp. 101-102).
The data for financial analysis is taken from the financial reports (annual reports) of the
company, i.e. Income Statement, Balance sheet & Cash Flow statement, which is then used for
analysis by computing the ratios (Gokul Sinha, 2009).
Thus, the financial statement analysis helps in decision making, inter and intra company
comparison, determines the financial performance and position of the firm in the market. It also
helps the investors to compare and analyze as to where to invest their money (Thomas R.
Robinson, Paul Munter and Julia Gran, 2004).
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The diagram above displays the current economic,political,environmental,legal and social risks
that may impact Coca Cola Co.s financial performance.
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1
LIQUIDITY RATIOS
CURRENT RATIO (CR)
CURRENTASSETS
CURRENTLIABILITIES
The objective of the ratio is to calculate the safety margin that can be used for paying off short
term creditor. The ideal ratio for CR is 2:1. If the ratio is lower than one, it states that the firm is
unable to meet its short term liabilities (Corey, et al., 2013).
From 1.28:1 in 2009 the CR has dipped to 1.13:1 in 2013, this shows that the company is
increasing its current liabilities as compared to 2009.
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The ratio signifies the ability of the company to meet its current liabilities without depending on
the resalable stock of the company. The standard ratio is 1:1(Rodiel, 2012).
From 0.95:1 in 2009 there is fall in the QR to 0.90:1 in 2013. This states that the company is
having less issues in paying off its current liabilities with the cash available to them.
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The ratio measures the absolute liquidity of the business for paying off its current short term
debts eliminating the account receivables as there is uncertainity about their fast collection. The
ideal ratio is 0.5:1(V. K. Goyal and Ruchi Goyal, 2012).
In 2009 the ratio was 0.67:1 and had increased to 0.73:1 in 2013. Thus, it states that the company
has enough to pay off each rupee of current liability. Sice the ratio is higher than the ideal ratio, it
shows that the company has ideal cash available to them.
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The ratio helps in measuring how liquid the company is and also identifies the movement of the
cash flows over a specific period of time(S.N. Maheshwari, S.K. Maheshwari, 2009).
From 0.61:1 in 2009, Coca Cola Co.s current cash debt coverage ratio has declined to 0.38:1 in
2013. This states that the company is not in a comfortable liquid situation, but is still managing
to pay off its creditors from the amount generated through their operations.
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Module Code:MOD000986
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1
SOLVENCY RATIO
DEBT-EQUITY RATIO
LONGTERMDEBTS
SHAREHOLDE R' SFUNDS
The ratio indicates the measure of relative proportion of debt and equity, which helps to finance
the asset of a firm (Ataullah, Higson and Tippett, 2007).
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PROPRIETARY RATIO
PROPRIETO R' SFUND
100
TOTALASSETS
Its objective is to provide a rough assumption of the amount of capital utilized to back the
business functions(Eugene Brigham, Joel Houston, 2011).
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It signifies the input of stock holders and the input of debt sources for the fixed assets of the
company (Mozhgan, et al., 2013).
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It helps in ascertaining the ability of the company to fulfil the interest payment through the
profits generated (Dothan, 2006).
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1
TURNOVER/ACTIVITY RATIO
INVENTORY TURNOVER RATIO (ITR)
COSTOFGOODSSOLD
AVERAGEINVENTORY
The ratio helps in measuring how many times the company sells it total average inventory
amount during a year (Georgios, et al., 2011).
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The DTR helps in depicting the speed by which the debtors are converted into cash in a year
(Michael and Christine, 1989).
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The ratio indicates how rapidly or how slowly the money is collected from the debtors(Helfert,
2004).
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The ratio signifies how well the company manages and pays off its creditors in a year (John,
2007).
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The ratio states the average period allowed by the average creditors to the company(George T.
Friedlob, Lydia L. F. Schleifer, 2003).
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PROFITABILITY RATIO
The ratio indicates the percentage of each sale remaining after making payment for all goods
sold(Douglas R. Emery, 1997).
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The ratio helps in determining the overall profitability of a company. It also measures how much
each amount earned by the company is translated into profit (Conrad, 2007).
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The ratio helps in analyzing the amount of operating cost drawn on the sale of goods and also
helps in determining the operational efficiency of the management of the business(Baruch Lev,
1974).
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The objective of the ratio is to analyze how effectively the funds raised from the shareholders
(equity & preference) has been utilized (Mainul, 2012).
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4
i
The ratio helps in computing the amount the shareholders expect from the earnings of the
firm(Stephen H. Penman).
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ii
This ratio depicts the proportion of Earnings Per Share(EPS) distributed as dividend to
shareholders(Peter M. Bergevin, 2002).
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iii
The ratio signifies how the investment in stock by shareholders generates either appreciation or
depreciation of cashflows in the form of dividends(Thomas R. Robinson et al., 2014).
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Thus, On an average,Coca Cola Co. exhibits 17.41 Price to Earning(P/E) Ratio whereas Pepsi
Co. exhibits 16.90 P/E Ratio, this indicates that Coca Cola Co.has slightly higher P/E ratio,
which shows that the investors of Coca Cola Co. had higher expectations from the company and
were willing to pay a bit more to obtain the stock of the company.
On an average Cola Cola, Co. delivers dividend yield rate of 2.83% and dividend payout rate of
49.42%, whereas Pepsi Co. has a relatively higher dividend yield rate of 3.08% anddividend
payout rate of 50.32%. This states that Pepsi Co. investors get slightly higher dividend out of
their investment as compared to Coca Cola Co.s investors.
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ASSETS: in 2013,Coca Cola Co.s current asset make up 34.76% of its total assets, whereas the
short term liabilities make up 30.88% of its total liabilities and shareholders equity. In
comparison, Pepsi Co.s current assets make up 28.65% of its total assets and the short term
liabilities make up 23.02% of its total liabilities and shareholders equity. This shows that Coca
Cola has enough cushion to meet its short term obligation from its current assets, on the other
hand Pepsi Co. has a slightly higher degree of current liabilities as compared to Coca Cola Co.
Thus, it states that there is a degree of difficulty that Pepsi Co. might face in paying off its
current obligations.
EQUITY: For the year 2013, Pepsi Co. witnessed 31.40% of long term obligations to total
liabilities and shareholders equity. Whereas Coca Cola Co. saw 21.26% of long term obligations
to total liabilities and shareholders equity.Therefore, this states that both the companies use debt
to finance its fixed assets.
ii
Income Statement is a statement that measure the companies financial performance over a
specified period (Maurice, 1949).
SALES: In 2013, Pepsi Co. shows 66,415 million of net revenue, whereas Coca Cola Co.s net
operating revenue is 46,854 million, but even after higher sale of Pepsi Co., coca cola co. makes
more operating income which states that the cost incurred for sales of Coca Cola Co. is much
lower than Pepsi Co. Constitutes 47% cost of sales to net revenue, whereas Coca Cola Co. has
39.3%.
PROFIT:In 2013, on an average, Pepsi Co. witnessed 10.79% of net profit from the sale of its
products, on the other hand Coca Cola Co. witnessed 22.23% of net profit, which states that the
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LIMITATIONS
There are always limitations to every study, this report has the following limitations:
Firstly, if the existing accounting data is incorrect the ratios drawn from it will also be incorrect.
Secondly, ratio analysis provides insufficient information for decision making purpose. It only
gives answers to problems not total solution.
The report only identifies Coca Cola Co.s financial condition only keeping in mind the financial
factors(quantitative factors) and ignoring other factors (qualitative factors), which are also
important.
This report gives a very superficial comparison between Coca Cola Co. and Pepsi Co. rather than
an indepth comparison for better comparative analysis.
8
RECOMMENDATIONS
As the preference of the consumers has shifted from unhealthy sugar beverages to healthy,
nutritious option, so by the analysis, Coca Cola Co. is recommended to shift their business to
nutritious beverages, as the society is moving towards a healthy lifestyle with water as an option
for thirst quenching. If the products do not change with the change in consumer needs, the
company might see a decline in the share of sales, growth and profitability.
Due to lack of quality resources there is less availability of quality water, which is the main
ingredient for making the products, if the quality of the raw material deteriorates or there is a
scarcity, then it will affect the cost of sales.Thus, like Pepsi Co. diversified into food products to
compete against Coca Coal Co., so the company should nowshift its focus to food products
which would help them to maintain the profitability of the company in the long run.
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The study can be further utilized for valuating the companies assets and liabilities and also can
be used for juding the risk factors that are arising in the business. It can also help in fulfiiing the
needs for alternatives to the current products the company produces. It can be used to asses the
negatives and positives of the current market and business activities for taking financial and
strategic decision making.
10
CONCLUSION
The financial information states that both Coca Cola Co. has continuously been a strong player in
the nonalcoholic industry with constant growth and an expanding market share.
From 2009 to 2013 on an average the return on equity is more than 30% for Coca Cola Co.,
which state that the company is highly profitable with the money invested by the shareholders.
Coca Cola Co. shows a decrease in sales in 2013 by 4.9% from 2012 whereas its competitor,
PepsiCo.shows an increase in the sales by 1.4% from 2012. But the net profit margin of Coca
Cola Co. remains higher than PepsiCo.by 8.17% in 2013, as the cost of sales of Coca Cola Co. is
much lower than PepsiCo.by 7.72%in 2013.
Thus the war between the nonalcoholic beverage brands goes on forever; both the brands, i.e.
Coca Cola Co. & Pepsi Co., are highly profitable and hence make it hard for the investors to
select a clear favourite for investment purposes.
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REFERENCE
1. Ataullah, A., Higson, A. and Tippett, M. 2007. The Distributional Properties of the Debt
to Equity Ratio: Some Implications for Empirical Research. Abacus, 43(2), p.111-135.
2. Baruch Lev, 1974. Financial statement analysis: a new approach. Published by PrenticeHall.
3. Brad, M.B. and John, D.L., 1996. Detecting abnormal operating performance: The
empirical power and specification of test statistics. Journal of Financial Economics,
4.
5.
6.
7.
41(3), p.359-399.
Coca Cola Company, 2009. Form 10K Annual Report. [online] Available at: www.cocacolacompany.com [Accessed 27 November 2014]
Coca Cola Company, 2010. Form 10K Annual Report.[online] Available at: www.cocacolacompany.com [Accessed 27 November 2014]
Coca Cola Company, 2011. Form 10K Annual Report.[online] Available at: www.cocacolacompany.com [Accessed 27 November 2014]
Coca Cola Company, 2012. Form 10K Annual Report. [online] Available at: www.coca-
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ANNEXURE
BALANCE SHEET & INCOME STATEMENT OF COCA COLA CO.
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